We hope you had a blessed Christmas and a fantastic finish to 2017.
Over the long weekend I had to run an errand to a large chain home improvement store. What remained of their Christmas decorations were on sale and the large area that had been dedicated to Christmas starting in early September had been downsized significantly.
Rising out of the leftovers from Christmas were the red hearts of Valentine’s Day which must be just around the corner -- at least in retail terms.
The financial markets are also making a transition, but traders are likely thinking more about the Fourth of July or Labor Day instead of Valentine’s Day.
Last year was remarkable in in so many ways. According to LPL Research, it was the first time in recorded history that the S&P 500 Index was positive in all 12 months of a calendar year. Volatility stayed near record lows almost all year. A more business-friendly Presidential administration and the hope of major tax reform legislation provided a strong tailwind.
We now transition to a new year. What happened last year doesn’t matter to traders. They buy and sell stocks or bonds based on their beliefs about the future – oftentimes six to nine months into the future.
What will 2018 bring? Likely more volatility, mid-term elections, a potential infrastructure spending bill, rising interest rates, adjustments for new tax laws, geopolitical risks, and many more unknown surprises.
While we cannot predict the future with any certainty, it does not appear that a recession or a bear market is imminent. A correction is certainly likely at some point in 2018 and repeating the returns from 2017 would be very difficult. It is possible bonds may see their values decline due to either rising interest rates and rising inflation expectations in 2018, but they still could provide some downside protection when stock market volatility picks up.
Traders are starting the year feeling Confident based on our proprietary Market Mood Meter®. Trend strength is at 100% (48 out of 48 points), Momentum strength is at 58% (28 out of 48), and volatility has risen over the last three trading days.
Securities offered through LPL Financial. Member FINRA/SIPC. Financial advice offered through Investors Advisory Group, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
The S&P 500 is an unmanaged index of 500 U.S. large cap stocks. One cannot invest directly in an index.
Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.
Market Mood Meter© Trend strength is determined using S&P 500 Index daily moving averages (DMAs) (8-21, 13-34, 21-55, 34-89, 55-144 and 89-233) to determine whether the short-term DMA value is higher than the longer-term DMA value. A daily moving average is the average price of the index over the indicated number of days. Trend is either Positive (8 points) if the short-term DMA is higher, Negative (0 points) if the short-term DMA is lower or Transitioning (4 points). A trend is Transitioning if the difference between the shorter DMA and longer DMA is between -.34% and +.34% of the shorter DMA. Maximum is 48 points when all trends are Positive.
Market Mood Meter© Momentum strength is determined using the same S&P 500 Index DMAs to determine whether trends are getting stronger or weaker calculated by dividing the difference between the shorter DMA and longer DMA by the shorter DMA. Momentum must be directional – rising or falling -- for 5 consecutive trading days to be Gaining (8 points) or Losing (0 points), otherwise momentum is considered Transitioning (4 points). Maximum is 48 points when all momentum is Positive.